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Page added on November 22, 2013
China Announces That It Is Going To Stop Stockpiling U.S. Dollars
China just dropped an absolute bombshell, but it was almost entirely ignored by the mainstream media in the United States. The central bank of China has decided that it is “no longer in China’s favor to accumulate foreign-exchange reserves”. During the third quarter of 2013, China’s foreign-exchange reserves were valued at approximately $3.66 trillion.
And of course the biggest chunk of that was made up of U.S. dollars. For years, China has been accumulating dollars and working hard to keep the value of the dollar up and the value of the yuan down. One of the goals has been to make Chinese products less expensive in the international marketplace. But now China has announced that the time has come for it to stop stockpiling U.S. dollars. And if that does indeed turn out to be the case, than many U.S. analysts are suggesting that China could also soon stop buying any more U.S. debt. Needless to say, all of this would be very bad for the United States.
For years, China has been systematically propping up the value of the U.S. dollar and keeping the value of the yuan artificially low. This has resulted in a massive flood of super cheap products from across the Pacific that U.S. consumers have been eagerly gobbling up.
For example, have you ever gone into a dollar store and wondered how anyone could possibly make a profit by making those products and selling them for just one dollar?
Well, the truth is that when you flip those products over you will find that almost all of them have been made outside of the United States. In fact, the words “made in China” are probably the most common words in your entire household if you are anything like the typical American.
Thanks to the massively unbalanced trade that we have had with China, tens of thousands of our businesses, millions of our jobs and trillions of our dollars have left this country and gone over to China.
And now China has apparently decided that there is not much gutting of our economy left to do and that it is time to let the dollar collapse. As I mentioned above, China has announced that it is going to stop stockpiling foreign-exchange reserves…
The People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan’s appreciation.
“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range, Governor Zhou Xiaochuan wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. Neither Yi nor Zhou gave a timeframe for any changes.
It isn’t going to happen overnight, but the value of the U.S. dollar is going to start to go down, and all of that cheap stuff that you are used to buying at Wal-Mart and the dollar store is going to become a lot more expensive.
But of even more importance is what this latest move by China could mean for U.S. government debt. As most Americans have heard, we are heavily dependent on foreign nations such as China lending us money. Right now, China owns nearly 1.3 trillion dollars of our debt. Unfortunately, as CNBC is noting, if China is going to quit stockpiling our dollars than it is likely that they will stop stockpiling our debt as well…
Analysts see this as the PBoC hinting that it will let its currency fluctuate, without intervention, thus negating the need for holding large reserves of the dollar. And if the dollar is no longer needed, then it could look to curb its purchases of dollar-denominated assets like U.S. Treasurys.
“If they are looking to reduce these purchases going forward then, yes, you’d have to look at who the marginal buyer would be,” Richard McGuire, a senior rate strategist at Rabobank told CNBC in an interview.
“Together, with the Federal Reserve tapering its bond purchases, it has the potential to add to the bearish long-term outlook on U.S. Treasurys.”
So who is going to buy all of our debt?
That is a very good question.
If the Federal Reserve starts tapering bond purchases and China quits buying our debt, who is going to fill the void?
If there is significantly less demand for government bonds, that will cause interest rates to rise dramatically. And if interest rates rise dramatically from where they are now, that will set off the kind of nightmare scenario that I keep talking about.
In a previous article entitled “How China Can Cause The Death Of The Dollar And The Entire U.S. Financial System“, I described how China could single-handedly cause immense devastation to the U.S. economy.
China accounts for more global trade that anyone else does, and they also own more of our debt than any other nation does. If China starts dumping our dollars and our debt, much of the rest of the planet would likely follow suit and we would be in for a world of hurt.
And just this week there was another major announcement which indicates that China is getting ready to make a major move against the U.S. dollar. According to Reuters, crude oil futures may soon be pricedin yuan on the Shanghai Futures Exchange…
The Shanghai Futures Exchange (SHFE) may price its crude oil futures contract in yuan and use medium sour crude as its benchmark, its chairman said on Thursday, adding that the bourse is speeding up preparatory work to secure regulatory approvals.
China, which overtook the United States as the world’s top oil importer in September, hopes the contract will become a benchmark in Asia and has said it would allow foreign investors to trade in the contract without setting up a local subsidiary.
If that actually happens, that will be absolutely huge.
China is the number one importer of oil in the world, and it was only a matter of time before they started to openly challenge the petrodollar.
But even I didn’t think that we would see anything like this so quickly.
The world is changing, and most Americans have absolutely no idea what this is going to mean for them. As demand for the U.S. dollar and U.S. debt goes down, the things that we buy at the store will cost a lot more, our standard of living will go down and it will become a lot more expensive for everyone (including the U.S. government) to borrow money.
Unfortunately, there isn’t much that can be done about any of this at this point. When it comes to economics, China has been playing chess while the United States has been playing checkers. And now decades of very, very foolish decisions are starting to catch up with us.
The false prosperity that most Americans are enjoying today will soon start disappearing, and most of them will have no idea why it is happening.
The years ahead are going to be very challenging, and so I hope that you are getting ready for them.
18 Comments on "China Announces That It Is Going To Stop Stockpiling U.S. Dollars"
george on Fri, 22nd Nov 2013 1:25 pm
this is great news
Luke on Fri, 22nd Nov 2013 2:05 pm
God’s own blessed Empire including their Gestapo NaziSA will collapse, but no one cares, Mao’s own Empire will rise, and everyone will care
Arthur on Fri, 22nd Nov 2013 2:37 pm
It remains to be seen if China will be ever able to get rid of the dollars they have. This (long expected) announcement is like the music stopping during the proverbial children’s game. I doubt that even KSA would accept dollars from China for it’s oil once the latter has shown it is serious about stopping to be a slave for US customers. China has absorbed most of the US production capacity and can now reward itself for a job well done and start to work for real money only. Wonder when the first of the many hundreds of US military bases are going to be closed for ever. Won’t be long. The US is going to be a normal country. Expect steep wage decreases in order to make production on US soil competitive again.
ghung on Fri, 22nd Nov 2013 2:41 pm
“The world is changing, and most Americans have absolutely no idea what this is going to mean for them.”
This concerns me more than any currency war we may be party to with China. Most Americans are in complete denial of the concurrent shitstorms they face in the next 10-20 years, are woefully unprepared, and will blame anyone and anything except their own ignorance and warped situational awareness; an entire society going through the stages of loss, denial, anger…. and the best stories we can tell ourselves include zombie appocolypses, doomsday dumbasses, and the ‘Rapture’: Greer’s catabolic collapse with a likely dose of Mad Max’s wild ride.
Location will be everything. Find what is likely to be a quiet(er) corner, live like a monk, and watch it play out from the cheap seats. That’s about the only plan I can come up with. I’ve tried to innoculate my family and neighbors to the likelyhood of collapse so they won’t be caught entirely flat footed, but most continue to fill their roles as good little consumer polluters.
“They’ll think of something”, right?
DC on Fri, 22nd Nov 2013 3:13 pm
If this does start to occur, I think we shoudl expect that the US will start looking about for someone else to take Chinas old spot. India anyone? After all, China took over for Saudi Arabia in a relatively smooth transition when it became apparent that even S.A. and the other middle east satraps could not sustain the ponzi-debt scheme that is the US economy on there own anymore.
If China wont guarantee US debt, and indirectly, its hegonomic empire, then I suspect the US will take it marbles out of China and take them somewhere else. There are a still a few regions desperate enough to become amerikas slave-wage sweatshops, right? IF the idea of a cess-pool like India becoming the next guarantor of amerikan debt sounds far-fetched,then If you asked any of us 20 years ago if we thought China would hold trillion+ of US debt, we’d probably all would have thought that was a crazy idea too.
The only thing that will stop the amerikan empire is a rapid repudiation of the petrodollar system, and the US’s satraps are still firmly in the uS camp. Because at the end of the day, all those IOUs to China arent worth the paper they are printed on, but oil still makes the world go around. And China doesn’t have any oil to speak of. So for all the China fear-mongering, I think the petrodollar system still trumps Chinas plastic salad shooters.
Chinese leaders are actually quite conservative and practical. They dont want to upset any applecarts. Any changes they make away from the dollar will be because there hand is being forced by reckless amerikan actions. It doesn’t help that publicly, amerikan officials are continuing there ham-fisted attempts to turn China into amerikas next cold-war 2.0 boogeyman. Asia ‘pivot’ and all that. All at the same time that China keeps building amerikas I-junks and salad shooters.
The uS wants China both as new cold war-enemy, and slave-labor factory(concurrently!). An attitude I am sure the Chinese find very strange to be sure.
foxv on Fri, 22nd Nov 2013 4:01 pm
“China just dropped an absolute bombshell”
YAAAAWN!!!
I think I heard this somewhere before. Ah, here it is
http://www.youtube.com/watch?v=zkzWyOaS8kU
eugeni on Fri, 22nd Nov 2013 5:03 pm
The source of the article is reliable? it’s seems to me this guy us selling his book and I don’t find this anywhere
Arthur on Fri, 22nd Nov 2013 5:10 pm
The source is Bloomberg:
http://www.bloomberg.com/news/2013-11-20/pboc-says-no-longer-in-china-s-favor-to-boost-record-reserves.html
eugeni on Fri, 22nd Nov 2013 5:21 pm
Thanks…. my Google doesn’t work well -_-‘
J-Gav on Fri, 22nd Nov 2013 5:32 pm
“Stop stock-piling” does not mean “dumping.” And yes, it will take them some time to bring down their holdings – unless they’re willing to watch their value evaporate into thin air overnight in a massive dollar-run. So yeah, it’s another (predictable) step in the direction everybody knows things are going, but it’s hardly the ‘bombshell’ Snyder makes it out to be.
Ghung – I think that’s good advice you’re giving (but, though I don’t need much, I’d still like to be a ‘comfortable’ monk). Problem is, it’s not always easy in our hyper-competitive societies to be a modest low-consumer, uninterested in fashionable clothes, the latest electronic gadgets,fancy cars, a monstrous house + swimming pool, etc. Immediately you’re branded as an unambitious slackard who poops on the American Dream. Sorta crimps your social life. No big deal since who needs to consort with Tea-Partiers anyway? Unfortunately, it’s not just the TP…. Just gently trying to break the news of what’s coming to friends and family, I’ve been called a pessimist, a cynic, a prophet of doom, the whole gamut. In addition, “quiet corners” are not so easy to come by these days … Gets frustrating sometimes.
Dave Thompson on Fri, 22nd Nov 2013 6:08 pm
The quiet corner can be where you are. Our personal perspective will make or break us. But getting used to less is the key. Try not driving for a week. No electronic gadgets for 23 hrs a day. Or even make a meal at home with the ingredients in your kitchen. Find the silence of being to be enough.
J-Gav on Fri, 22nd Nov 2013 11:22 pm
Dave – Well said. The silence of being is something I’ve been working on for some time now and it’s … well, golden;
when it’s attainable – which is not 24/24, 7/7 where I live.
BillT on Sat, 23rd Nov 2013 2:58 am
I have been following China’s plans to break the dollar monopoly for years. It has been happening for a long time, but now they are getting bold and actually telling the world that they are doing it. It is obvious to anyone looking behind the curtain that most of the world, outside of the West, would like to be out from under the dollar. Over half of the worlds population is now trading in other than dollars and that cuts out the US as a controller of trade.
Some thoughts:
When it happens, and China announces a gold backed yuan, what will happen? I think gold will double, at least, in value. That could easily offset a trillion lost in the dollar collapse if you are holding 15,000 tons of gold.
The US is deathly afraid of China as it holds the chains and has a financial collar on the US neck.
It is a nuclear country with the capability of nuking US cities.
It has the ability to cut off the West from all of Asia and much of central Asia.
It is allied with Russia, another nuclear country that would like to see the US go down.
It no longer needs the US to buy it’s goods as the rest of the world will make up the loss when the dollar dies.
These are my thoughts, but, yes, the West is in for a heart-stopping education in money and value very soon.
Arthur on Sat, 23rd Nov 2013 2:08 pm
Bill, agree with most, some notes in the margin:
It is allied with Russia, another nuclear country that would like to see the US go down.
I doubt that. Deep in it’s heart it fears China more than the US, as Russia is very vulnerable in the far east. The SCO alliance is an ad hoc alliance in reaction to aggressive US/western behavior, that will fall apart as soon as the US will be downsized, first financially. Russia would love to see the US changing tune, but not eliminated. In the end Russia aspires to be part of the European/western camp.
It no longer needs the US to buy it’s goods as the rest of the world will make up the loss when the dollar dies.
China wants to continue to deliver goods to the US, but not for dollar but real values instead: food, energy, cars, gold, real estate, corporations, harbors.
But the probability that the dollar will die as a global reserve currency, does not mean that there won’t be voices advocating for another global currency. The logic will be the same as applied in Europe in the nineties: “jeez, we are doing so much trade with each other, why not adopt a single currency?”. This logic could be applied globally as well by the globalist. Don’t count them out yet. And China might even agree, if it is granted a big seat in the ‘security council of future global finance’. And Wallstreet/City/IMF could even agree. And if there wasn’t the resource depletion issue, it might even become inevitable. However we DO have a resource depletion issue, that will torpedo global trade in the long run, so I tend to believe that there will not be globalism and hence not a global currency in the future.
BillT on Sat, 23rd Nov 2013 2:37 pm
Arthur, are you so sure Russia wants an alliance with the broke EU? I see them wanting domination, not alliance, if anything.
As for the idea of a world currency to replace the dollar, nope! I see China wanting to be one of MANY currencies used for trade, not the replacement for the dollar or a Euro type replacement for the world. The Euro is dying as you still have many sovereign countries that want to be their own boss and eventually, the EU will break up and each will go back to their own currencies after the financial ties fail. That is my thoughts on the situation.
BillT on Sat, 23rd Nov 2013 2:40 pm
Arthur, we seem to agree on the idea that there will not be a world currency or government as we have pasted the time and place for it to be possible. Depletion is going to ruin many a globalist plan.
Arthur on Sat, 23rd Nov 2013 3:40 pm
Bill, the EU is not broke, not in a long shot, for the simple reason that the EU has no impossible imperial ambitions. Europe has achieved it’s pole position in world economy without the free lunch of owning a reserve currency.
About the long term ambitions of Putin-Russia… the man speaks German and said this in his speech for German parliament in 2001 and repeated the same message several times after that:
http://www.spiegel.de/politik/ausland/russland-putin-profitiert-von-den-snowden-enthuellungen-a-931964.html
Aber ich bin der Meinung, dass Europa seinen Ruf als mächtiger und selbstständiger Mittelpunkt der Weltpolitik langfristig nur festigen wird, wenn es seine eigenen Möglichkeiten mit den (…) Ressourcen und (…) Potentialen Russlands vereinigen wird.
which translates into:
“It is my opinion that in the long run , Europe can establish itself as a powerful and independent center in world politics only if it combines it’s own possibilities… with the possibilities and potential of Russia.”
We should realize that Russia has nothing but oil, weapons and nukes and is unable to seriously compete with the rest of the world, let alone ‘dominate’ the EU, although it has a mighty oil & gas weapon if the going gets tough. But that works both ways since Russia gets most of it’s income from Europe as the best paying customer. Furthermore has overpopulated neighbor China 10 times as many people as Russia and a non-Christian heritage. Russia is the natural next ally of Europe at the end of Pax America. Europe for the economy, innovation and technology, Russia for the resources, agriculture (potentially) and military. 700 million Europeans are more than enough to contain China (1300m).
Arthur on Sat, 23rd Nov 2013 3:42 pm
More recent (2012) confirmation on the European direction of Russian foreign policy:
http://deepresource.wordpress.com/2012/06/23/russia-plays-the-european-card/